Apparel Retailers Turn to Chips to Track Merchandise in Stores*

Apparel retailers are taking their inventory-management systems to the sales floor as they look
to track individual items more closely through busy environments and fulfill more online orders
through stores.

Department-store chain Nordstrom is among the retailers expanding the use of RFID technology.
PHOTO: MARK ABRAMSON/BLOOMBERG NEWS

Apparel sellers American Eagle Outfitters Inc., Victoria’s Secret & Co. and Nordstrom Inc. are
among merchants expanding their use of a new generation of radio frequency identification, or
RFID, chips to close an information gap in supply chains that grows as consumers try on and
move merchandise around a store.

Retailers have long used RFID technology in tracking systems for containers, pallets and crates
of goods, but high costs and limited technology have made tracking individual pieces difficult.
That has left stores to take full stock of inventories at designated times, often when shops are
closed.

Companies say the technology has advanced and the cost of the chips has come down enough
that tracking individual items within a store makes more sense. Executives said tracking at the
item level gives them better insight into customers’ shopping habits, helps stores fill orders
more quickly and allows store workers to save time when searching for merchandise.
The stakes in tracking have grown as e-commerce business has boomed in recent years,
including a boost in online sales during the pandemic. Many retailers are trying to avoid the
higher costs of creating separate supply chains for store sales and another for online customers
by using their stores as virtual distribution centers and offering services such as buy online, pick
up in store.

Claudia Clemens, an analyst at research firm Gartner Inc., said changing shopping habits have
made it critical for retailers to have visibility of what merchandise they have in stock.

“If they are promising customers who are coming to pick something up and they don’t actually
have it or maybe it’s the wrong item, that ends up being an incredibly disappointing experience
for consumers,” Ms. Clemens said. “It’s table stakes now. That’s how retailers are gaining a
more competitive advantage.”

American Eagle said Tuesday it plans to outfit about 500 stores across the U.S. with technology
from New York-based startup Radar that tracks items by reading RFID chips embedded in the
retailer’s price tags.

Spencer Hewett, founder and chief executive of Radar, said the company’s technology can
identify where goods such as a green T-shirt may have been stacked on a shelf with beige
sweatshirts, helping sales workers point shoppers to items faster and fill online orders for
curbside pickup.

“If something’s missing from the sales floor, a sales associate knows where to go get it in the
back,” Mr. Hewett said. “If a customer has moved into the fitting room and that’s the last of
that particular type, they can very quickly locate it for another customer” to say it’s no longer
available.

Radar tracks the goods with flat white discs that are equipped with cameras and attached to a
store’s ceiling. The devices can read signals emitted by paper-thin RFID tags attached to the
price tags on clothes and can track the location of shoppers in the store. The system works with
all RFID tags, the company said.

Radar said its software uses that information to display the precise location of items on a map
on its smartphone app with 99% accuracy and a lag time of about 60 seconds. The tags aren’t
tracked beyond the store readers, according to Radar.

RFID tags cost about 15 cents each in 2007, which quickly added up across a large number of
items. Today, the cost of chips is down to about 4 cents per tag, according to Mr. Hewett.
Startup Radar makes flat white discs equipped with cameras that are attached to a store’s ceiling to track
individual items using RFID technology. PHOTO: RADAR

Lingerie seller Victoria’s Secret is using RFID tags to help in-person shoppers see more style
options. The company said it is rolling out new store formats that include RFID-enabled
technology that can recognize products and use screens in fitting rooms to show customers
various colors and sizes available. Customers can select what they are interested in, and an
associate can bring the items to them to try on.

“It’s a great way for the customer to interact in an omni way with our full assortment,” Greg
Unis, chief growth officer for the company, told an investor meeting Oct. 13.

Inditex SA, which owns fast-fashion giant Zara, in 2014 began putting RFID chips into the
security tags of every item it sells that track the garments from the company’s logistics
platforms to the final sale. According to Inditex, the system has increased sales of items at their
full price by helping Zara put items in the right place at the right time to avoid markdowns, such
as by making a piece of clothing available online when it isn’t selling well in a specific store.

Zara this year is implementing a system that will eliminate hard antitheft tags in favor of
sewing RFID chips into its garments.

That system “will be the basis for us to continue deepening the digitalization of stores and their
integration with online platforms in the coming years,” Óscar García Maceiras, Inditex’s chief
executive, said on an earnings call March 15.

Department-store chain Nordstrom is expanding its use of RFID technology this year, Peter
Nordstrom, president and chief brand officer, said on an earnings call March 2.
The investment will “improve our ability to buy, allocate and track merchandise across our
network, provide us greater visibility into profitability at the unit level, increase efficiency and
reduce shrinkage,” Mr. Nordstrom said.

Discussion Questions:

1. How does RFID technology work, and what are some potential benefits and drawbacks of
using it for inventory management in a supply chain?
2. How can the data collected through RFID be used to improve key metrics such as inventory
accuracy, stock replenishment time, and order fulfillment rates?
3. Using a specific example of a supply chain and its entities (such as manufacturers,
distributors, retailers, suppliers, etc.), explain how RFID technology can be used by both the
supply chain entities and third-party logistics providers (3PLs) to manage inventory more
effectively.
4. What are some potential challenges or limitations that may need to be addressed when
implementing RFID in a supply chain context?

*Adapted from L. Young, “Apparel Retailers Turn to Chips to Track Merchandise in Stores”. The Wall
Street Journal (March 18, 2023).